Pending Sales of U.S. Existing Homes Rise by 8.2%, Almost Triple Forecasts

By Alex Kowalski -
Jun 29, 2011

The number of contracts to buy
previously owned U.S. homes rose almost three times as much as
forecast as falling prices made properties more affordable.

The surprising 8.2 percent increase in the index of pending
home resales from April followed a revised 11 percent drop the
prior month, the National Association of Realtors said today in
Washington. Economists forecast a 3 percent gain, according to
the median estimate in a Bloomberg News survey.

While the measure of contract signings has been volatile
this year, last month’s index level is 0.1 point lower than the
January figure, indicating residential real estate has made
little headway. Foreclosures, unemployment at 9.1 percent and
stringent loan terms are holding back demand even as a decline
in home prices attract some buyers.

“The market for existing homes is still extremely weak,”
said Patrick Newport, an economist at IHS Global Insight in
Lexington, Massachusetts. “Existing-home sales will probably
improve in June based on this reading, but probably not a lot.”

Estimates for pending home sales ranged from a drop of 4.8
percent to an increase of 15 percent, according to 36 forecasts
in the Bloomberg survey. Pending sales rose 16 percent from May
2010.

Shares of homebuilders dropped after KB Home, the Los
Angeles-based company that targets first-time buyers, reported a
wider second-quarter loss. The Standard and Poor’s
Supercomposite Homebuilding Index fell 2.3 percent at the 4 p.m.
close in New York.

Existing Home Sales

A separate NAR report on June 21 showed sales of previously
owned homes, which make up about 96 percent of the market,
dropped in May to the lowest level in six months. Purchases
decreased 3.8 percent to a 4.81 million annual rate. The median
price fell 4.6 percent from a year earlier.

The rate of purchases of previously owned homes in May,
which were at a six-month low, will probably be “the low point
of the year,” NAR Chief Economist Lawrence Yun said last week.

Following the June 21 report, Yun told reporters that home
sales should begin to rebound in coming months and that the
index of pending sales, based on not-yet-complete data, might
show an increase of about 15 percent for May.

Some economists consider the index a leading indicator
because it tracks contract signings. Purchases of existing homes
are tabulated when a sale closes, typically a month or two
later.

‘Extremely Weak’

The May gain “only looks good because the prior month was
bad,” Newport said. The index “is telling us that the market
for existing homes is still extremely weak.”

Today’s report showed an 88.8 index level for pending home
sales on a seasonally adjusted basis. A reading of 100 is
consistent with the average level of contracts in 2001, when
record-keeping began, and coincides with “historically
healthy” home-buying traffic, according to the NAR.

The index last rose above 100 in April 2010 before falling
two months later to the lowest level since the real estate
agents’ group created it.

All four regions showed an increase in contract signings
from a month earlier, led by a 13 percent gain in the western
U.S.

Lennar Corp. (LEN) Chief Executive Officer Stuart Miller said
last week he sees the first signs of “repair” in the market.
The third-largest U.S. homebuilder by revenue reported second-
quarter profit that beat analysts’ estimates on higher house
prices and earnings at its distressed-investing unit.

Spring Season

“While it’s now well-documented that the expected spring
selling season of 2011 simply did not materialize, it is
beginning to feel like the worst days of the housing market are
getting behind us,” Miller said during a June 23 call with
analysts.

Even so, housing is having trouble gaining strength. The
S&P/Case-Shiller index of home values in 20 cities fell 4
percent in April from a year earlier, the most in 17 months, the
group said yesterday. From March to April, prices dropped 0.1
percent on a seasonally adjusted basis.

Federal Reserve Chairman Ben S. Bernanke said June 22 that
“uncertainty” surrounding employment and the economy is
“affecting people’s willingness to make the commitment to buy a
house.”

New-home purchases declined in May for the first time in
three months and prices also dropped, a Commerce Department
report showed last week. Sales decreased 2.1 percent to a
319,000 annual pace. The median price fell 3.4 percent from the
same month in 2010, the biggest 12-month drop since October.